Stock losses widen in final hour

Terrorism fears, Home Depot tumble hinder market

By

JulieRannazzisi

NEW YORK (CBS.MW) -- The Dow finished with a triple-digit loss for a second straight session Tuesday, with renewed worries of terrorist attacks throwing cold water on any hope for a rebound late in the trading day.

A severe earnings-driven decline in Home Depot dogged blue chips throughout the trading day. And brokerage stocks couldn't hold gains on news that Merrill Lynch had reached a settlement with the New York State Attorney General.

"This is very discouraging action since we started the day out higher. Tuesday's news background did not warrant this kind of sell-off," opined Donald Selkin, director of equity research at Joseph Stevens.

Broad market sellers concentrated on retail, biotech, airline and oil service issues while defensive areas of the market like gold, natural gas and utilities continued to fare well.

One strategist pointed to the tough trading conditions generated by the market's whippy day-to-day action.

"These bottoming periods can be frustrating times. Just when it looks like a better trend is developing, the market takes another step back and seems to have to start all over again. But this is normal stuff," commented Robert Dickey, managing director at RBC Dain Rauscher.

Dickey points to the steady gains in the advance-decline line, which signal a net improvement in stocks.

"More stocks are bottoming and rallying, but they may be different names than investors are used to. Avoid stocks that are in the news because of their current big price declines. These may be future opportunities, but for the near-term, it is likely that they will need to go through a longer period of bottoming and basing before some more bullish trends can begin," he concluded.

Volume totaled 1.17 billion on the NYSE and 1.66 billion on the Nasdaq Stock Market. Market breadth was negative, with decliners elbowing past advancers by 20 to 11 on the NYSE and by 22 to 13 on the Nasdaq.

Merrill ends up; Home Depot knocks retailers

Merrill
MER, -1.02%
tacked on 1.1 percent following the announcement of a $100 million settlement with New York State Attorney General Eliot Spitzer.

The world's largest broker said in an afternoon press conference that it might take a charge to cover the $100 million settlement fee. Standard & Poor's said Merrill's settlement with the New York State Attorney General was consistent with its expectations and would not result in a change in ratings or its outlook. S&P said the outlook for Merrill remains negative due to the weak operating environment for securities brokers in general.

Spitzer was investigating the practices of Merrill's equity analysts, which he maintained mislead investors by touting stocks in public while disparaging them in private. See the full story. Other brokerage stocks traded mostly lower, with Goldman Sachs down 1.3 percent, Lehman Brothers off 0.8 percent and Morgan Stanley down 1.9 percent

Retail stocks moved lower, breaking a two-day winning streak as Home Depot retreated following a run-up Monday on better-than-expected earnings news from Lowe's Companies.

Home Depot
HD, +0.08%
took a 7.4 percent beating and lead the Dow's declining list throughout the trading day. Though the home improvement retailer posted first-quarter earnings that cruised past the Wall Street consensus estimate, investors weren't impressed. A.G. Edwards lowered its rating on Home Depot to a "hold" from a "buy" and summed it up like this: "[Home Depot's] relative earnings performance has not been as strong as we, or investors, would have liked, particularly up against rival Lowe's." Lowe's shares gave up 1.4 percent. See the full story.

Among the automakers, Ford
F, +0.43%
rallied 5.1 percent following a Merrill Lynch upgrade to an intermediate-term "strong buy" rating from a "neutral." The stock was also added to Merrill's "Focus 1" list. On Monday, Ford called back a retired vice chairman, Allan Gilmour, to be its new chief financial officer. Merrill said recent management appointments at Ford should enhance investors' confidence. Rival General Motors subtracted 1.4 percent. See full story.

UBS Warburg cut Dow stock Procter & Gamble
PG, -0.53%
to a "buy" rating from a "strong buy" and also trimmed its view on Clorox
CLX, -0.79%
to a "hold" from a "buy," noting that some stocks in the household products group may now be at risk to market rotation due to their recent run-up. P&G lost 1.4 percent and Clorox dropped 1.5 percent.

Qualcomm rallies but software issues slide again

Qualcomm
QCOM, -0.85%
was a standout in the tech sector, gaining 2.3 percent after reiterating its previous fiscal third-quarter and full-year earnings targets. The wireless firm referred to the "rapid uptake" of its third-generation CDMA2000 services. Check the story.

Microsoft
MSFT, -0.15%,
locked in a battle with Sony's PlayStation2, said it would invest $2 billion to bring its Xbox game console to the Internet in order to enliven soggy sales. Read the full story.

Microsoft shares dropped 3.4 percent amid a general slump in the software sector, which was the biggest declining group in the tech space for a second consecutive session. PeopleSoft shares continued to bleed, sliding 8.2 percent, while Oracle closed down 2.9 percent.

Contract manufacturer Flextronics International
FLEX, -0.55%
slumped 4.1 percent after announcing late Monday a $364 million offer to acquire NatSteel Broadway -- a supplier of plastics and metal components -- in order to strengthen its presence in China. See full story. Among other stocks in the group, Jabil Circuit relinquished 4.7 percent and Sanmina declined 5.7 percent.

Most makers of fiber-optic components gave up ground ahead of Ciena's
CIEN, +0.86%
fiscal second-quarter results, expected later in the week. In a research note, SG Cowen said "good news is hard to find in optical" and expressed its belief that a recovery would not emerge until next year. Ciena shares slid 5.7 percent while JDS Uniphase declined 5.6 percent and Lucent fumbled 4.1 percent. But Nortel Networks
NT
stood out with a 4.6-percent gain after UBS Warburg chimed in with soothing words. The firm said recent channel checks suggest Nortel's wireless business -- which represents 40 percent of sales -- is showing better-than-expected strength during the second quarter, which could meaningfully firm up the overall quarterly outlook for the company.

Bonds run up as stocks wobble

Government bonds took their direction from stocks, with softness in the equity realm spurring interest in the fixed-income arena.

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